Virginia National Bankshares Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, compared primarily with FY2022. This is an annual filing, not a standalone fourth-quarter report. The company is a Virginia bank holding company; Virginia National Bank is its principal operating subsidiary.
Financial performance and condition
| Metric | FY2023 / year-end 2023 | FY2022 / year-end 2022 |
|---|---|---|
| Net income | $19.3 million; diluted EPS $3.58 | $23.4 million; diluted EPS $4.38 |
| Net interest income | $49.0 million GAAP; $49.3 million FTE | $53.5 million GAAP; $53.9 million FTE |
| Net interest margin | 3.36% FTE | 3.21% FTE |
| Noninterest income / expense | $9.1 million / $34.1 million | $13.7 million / $38.6 million |
| Total assets | $1.646 billion | $1.623 billion |
| Total loans / deposits | $1.093 billion / $1.409 billion | $936.4 million / $1.478 billion |
| Cash and cash equivalents | $28.4 million | $40.1 million |
| Shareholders’ equity | $153.0 million | $133.4 million |
Return on average assets was 1.22% (1.30% in 2022), return on average equity was 13.81% (16.61%), and the FTE efficiency ratio was 58.3% (57.1%). The company declared dividends of $1.32 per share in 2023, versus $1.20 in 2022; the stated quarterly rate was $0.33.
Operating cash flow was $13.9 million, investing cash flow was negative $19.8 million, and financing cash flow was negative $5.9 million. Cash and cash equivalents decreased $11.7 million during the year. Year-end borrowings included $66.5 million of FHLB advances and $3.5 million of federal funds purchased. The Bank’s regulatory capital ratios were 17.29% CET1, 17.29% Tier 1, 18.12% total capital, and 11.05% leverage; it exceeded the regulatory “well capitalized” thresholds.
Material changes versus FY2022
- Net income declined 17.8%. Higher interest expense and lower noninterest income more than offset lower operating expenses.
- FTE net interest income fell $4.6 million even as FTE margin improved 15 basis points. Average earning assets declined 12.6%; deposit costs rose substantially, with average interest-bearing deposit cost increasing to 1.94% from 0.27%.
- Loans increased 16.7%, while deposits declined 4.7%. Noninterest-bearing deposits fell 24.8%; time deposits rose to $318.6 million from $115.1 million.
- Noninterest income decreased $4.6 million, in part because 2022 included a $2.4 million commercial-dispute settlement, a roughly $1.0 million building-sale gain, and income and a gain related to the sale of Sturman Wealth Advisors.
- Noninterest expense declined $4.5 million, reflecting merger-related efficiencies and the Sturman Wealth sale. The company sold $49.8 million of available-for-sale securities in 2023, recording a $206,000 pretax loss.
- The company adopted CECL on January 1, 2023. The transition increased the loan allowance by $2.5 million and reduced opening retained earnings by $1.9 million, net of tax. Year-end allowance for credit losses was $8.4 million, or 0.77% of loans, versus $5.6 million, or 0.59%, in 2022.
Outlook, risks, contingencies, and unusual items
- No specific earnings or financial guidance is provided. Management stated that an inverted or relatively flat yield curve could put downward pressure on net interest income in 2024. Results remain sensitive to interest rates, competition for deposits, and asset/liability repricing.
- Liquidity is a key risk: approximately 25.5% of deposits were uninsured at year-end. Management reported $189.4 million of available borrowing arrangements, with $66.5 million of FHLB advances outstanding. Availability under stress is not assured.
- Credit exposure is concentrated in real estate: 82.6% of loans were real-estate secured, and commercial real estate loans were approximately $396.1 million, or 36.3% of total loans. Nonaccrual loans rose to $1.9 million from $673,000; management cited potential CRE refinancing and market pressures.
- Available-for-sale securities had $50.9 million of gross unrealized losses at year-end, largely attributed by management to higher market rates; the company reported no related credit-loss allowance. Whether losses are realized depends in part on liquidity needs and future rate conditions.
- FY2023 unusual items included $1.8 million of BOLI income, including proceeds related to a former employee’s death, and a $460,000 gain on termination of an interest-rate swap. The swap hedge was liquidated in the first quarter; no hedges remained at year-end.
- The company planned to sell Masonry Capital effective April 1, 2024; it expects a revenue share for six years afterward and no related expenses. This is a planned subsequent-period transaction, not a completed FY2023 sale.
- Commitments included $157.8 million of unfunded lines, ACH authorizations, and letters of credit, plus $13.0 million of commitment letters. Management did not anticipate material losses from these arrangements. Ordinary-course legal proceedings were not expected to have a material adverse effect.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the filing did not include an auditor attestation on internal control.
Important facts for investors to verify
- Deposit trends, uninsured-deposit exposure, deposit pricing, and the company’s use and remaining capacity of FHLB and other borrowing lines.
- Commercial real estate loan concentrations, nonaccrual and delinquency trends, and the assumptions underlying the CECL allowance.
- Potential liquidity or capital effects if the company must sell securities carrying unrealized losses.
- Whether the expected Masonry Capital sale closed as planned and how the revenue-share arrangement affects future reported income.
- Dividend sustainability relative to earnings, Bank dividend capacity, and regulatory restrictions.
- Interest-rate sensitivity assumptions and whether management’s 2024 yield-curve commentary is reflected in subsequent results.